The precise ways in which large households realise lower per-capita costs are not well
understood. Using diary data on home-grown food in Sri Lanka, we investigate how the
capacity to grow foods is an important source of household economies of scale for large rural
households. Understanding such effects are crucial for accurately measuring poverty levels
and inter-household comparisons of welfare (Gibson, 2002). We confirm both the presence of
economies of scale in home-grown vegetables and show that large households tend to
consume relatively more home-grown vegetables than smaller households. Moreover, we
uncover empirical evidence that large households tend to substitute home-grown food for
market-purchased food. This sheds new light on the ‘Deaton-Paxson’ paradox and accounts
for why large households tend to engage in more discretionary spending on non-food items.
We discuss the implication for estimating poverty rates across rural and urban regions.